REAL ESTATEINVESTOR
WORKSHOPWelcome and thank you
for attending
YOURSPEAKERSTODAYScott LuriePresident | Milwaukee Hard Money
Ryan GordonCCO | WaterStone Bank
THETALKINGPOINTS
CAPITALIZATION RATE How is it used to determine value?
VALUATION Net Operating Income and Property Value
UNDERWRITING What is it and how do banks use it during financing?
CASE STUDY: 2-UNIT DUPLEX Review the Financials
CASE STUDY: 11-UNIT MIXED-USE BUILDING Review the Financials
Q&A SESSION You ask the questions, we give the answers
WHAT ISA CAPRATE Definition:
The capitalization rate is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property.
Often called the "cap rate," this measure is computed based on the net income which the property is expected to generate. It is used to estimate the investor's potential return on their investment in the real estate market.
Capitalization Rate = Net Operating Income ÷ Current Market Value
CALCULA
TIONMarket Value$214,285
Net Operating Income$15,000
Cap Rate 7.00%
Net Operating Income
Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments.
This is revenues earned from a property, minus all pre-tax expenses.
Net Operating Income = Revenues - Expenses
WHAT IS NET OPERATINGINCOME?
WHATIS YOUR
VALUE
NOI = $15,000 8% Cap Rate = $187,500
7% Cap Rate = $214,285
6% Cap Rate = $250,000
What’s the NOI on one of your properties?
WHAT ISPROPERTY
VALUE Definition:"Property value" refers to the fair market value of a given piece of property, though the actual price of the property may be higher or lower.
Property value takes into account the size and location of the property, as well as anyimprovements on the land.
Property Value = Net Operating Income ÷ Cap Rate
UNDERWRITINGLet’s Talk a Little About
Definition:Underwriting is the process through which an individual or institution
takes on financial risk for a fee.
The risk most typically involves loans, insurance, or investments.
PURCHASEVS
REFINANCEWhat is the Difference?
PURCHA
SE
How Do You Underwrite thePurchase of a Property?
Traditional Lender
Hard Money Lender
75-80%Purchase Price
AppraisalRequired
Credit CheckRequired
45-60 Daysfor Closing
4-6%Interest Rate
90%Purchase Price
NOAppraisal
NOCredit CheckAsset-Based
7-10 Daysfor Closing
15%Interest Rate
REFINA
NCE
Traditional Lender
Hard Money Lender
75-80%Loan to Value
20-30 YearAmmortization
Credit CheckRequired
45-60 Daysfor Closing
4-6%Interest Rate
65%After Repair Value
NOPrepayment
Penalty
Repair FundsAvailable
7-10 Daysfor Closing
15%Interest Rate
CASH-OUT REFINANCEBorrowed Money fromHard Money Lender
Traditional Lender
75-80%Loan to Value
20-30 YearAmmortization
Credit CheckRequired
45-60 Daysfor Closing
4-6%Interest Rate
HOW DO WEGET TO A
CASH-OUT REFIWITH A
TRADITIONALLENDER
HOW DOYOU CREATE
VALUELet’s take a look at some real-life examplesof properties that were acquired and where improverments were added to help improve the value and increase leverage in the property.
DUPLEX
Vacant When Purchased
After repairs were made, twotenants were brought in to helpfill the house and create value.
Duplex in Shorewood
Income
Contract Labor
Insurance
Repairs
Taxes
Utilities
$33,710
($1,355)
($403)
($642)
($6,804)
$0
NOI $24,516
$140,000Purchase Price
$50,000Repairs
$20,000Finance Charge
$210,000All-in
STEP 1
STEP
2
That’s nice, but what isthe value of the property?
$1,400/Mo.Tenant 1
$1,400/Mo.Tenant 2
WHATIS THE
VALUATION8% Cap = $306,450
But, what if the NOI changes?To the spreadsheets...
NOI = $24,516
THEREFI
SECURED LOAN $230,000
FIXED RATE4%
AMMORTIZATION 25 Years
EXTRA CASH Personal Funds Removed, Plus Extra $20,000
MIXEDUSE
BUILDING
T-Mobile Antenna
Approached about adding anantenna to the roof for an additional $1,500/month revenue.
11 Unit + 3 Storefronts in Milwaukee
Income
Contract Labor
Misc.
Taxes
Utilities
$129,514
($22,345)
($17,293)
($6,804)
($18,798)
NOI $64,271
Let’s Talk About T-Mobile
WHAT IST-MOBILE
WORTH
ORIGINAL VALUENOI at $46,271 equals $578,387 valuation
$225,000. BOOM. Just like that. From an antenna.
ADD T-MOBILENOI at $64,271 equals $803,387 valuation
Using our 8% Cap Rate, let’s see...
WHAT’SMONEYWORTHTO YOU
EXTRA $50 A MONTH Equals $7,500 in Property Value
EXTRA $100 A MONTHEquals $15,000 in Property Value
EXTRA $200 A MONTH Equals $30,000 in Property Value
Using an 8% Cap Rate, let’s see...
Would could you do with an extra $30,000 in leveragable value?
OPENFOR YOUR
QUESTIONSASK AWAY
THANK YOUWe look forward to working
with you in the future.